Our latest paper looking a the evolution of cost engineering and the causes of cost overruns has been published in the May edition of PM World Journal. See the full publication at: https://pmworldjournal.com/#in-this-issue
Cost Overruns on Early Canal & Railway Projects looks at some of the canal and railway projects built in the same general timeframe as second phase of the industrial revolution. The objective of this paper is to identify and understand the reasons for the cost control challenges on many of the canal and railway projects built between the 1760s and 1840s identified in our earlier paper The Origins and History of Cost Engineering (download from: https://mosaicprojects.com.au/PMKI-ZSY-020.php#Process1)
While the difficulties in determining a realistic cost for a new class of project are understandable. The evidence suggests that in addition to the lack of empirical cost information, the problem with many of the cost estimates may have been caused, or exacerbated, by various combinations of poor governance, questionable ethics, and optimism bias.
Download Cost Overruns on Early Canal & Railway Projects: https://mosaicprojects.com.au/PDF_Papers/P207_Canal+Wagonway_Cost_Overruns.pdf
The latest paper in our series on the origins of project controls has been published in the March edition of Project Management World Journal.
This paper traces the origins of accounting, through cost accounting, to cost engineering. Download the full paper from: https://mosaicprojects.com.au/PMKI-ZSY-020.php#Process1
This is the part of a series of papers looking at the origins of the structures underpinning Earned Value Management (EVM):
- The History of Scheduling (these papers are stand-alone, but the schedule is a key support to EVM)
- The Origins of WBS & Management Charts
- The Origins of Cost Engineering
- The Origins of EVM (full update planned for mid-year)
As always, we are happy to receive feedback and additional information to help improve this history resource which is freely available to everyone: https://mosaicprojects.com.au/PMKI-ZSY.php
There is a useful discussion on the aspects of project ‘control’ systems by Earl Glenwright in this month’s PM World Today.
Whilst project controls don’t and can’t actually control anything (for more on this see: Project Controls Don’t), the information provided by ‘project controls’ is needed to inform the decisions being made by the project management and team.
What Earl has done is separate the ‘control tools’ into three groups:
- Primary Controls are those that are essential to the management of daily on site performance (eg, schedule and quality).
- Ancillary Controls facilitate the on-going management of the construction project (eg, cost and issues).
- Support Systems are tools that process, create, store, or model the integration of the design, schedule, and cost into a composite relational study of the project’s work plan.
Interestingly, cost is seen as an ancillary control, a view we strongly agree with, cost is a very sensitive symptom of how well the primary controls are working. For more on this see: Cost Engineering is an Oxymoron!
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Cost performance is a symptom of other management functions. It is impossible to ‘engineer costs’. The only way to change cost outcomes is to change the other processes that incur costs.
The three key areas of business operations and project management that incur costs and where a change in the process will cause a change in costs are:
- Changing the procurement / purchasing / supply chain processes that acquire the required inputs to the process being managed.
- Changing the way the work that transforms inputs to outputs is undertaken through enhanced management and leadership including skilling, motivating and directing the people involved in the work and ensuring they have the correct resources and equipment to undertake the work.
- Focusing on the quality of the outputs produces to ensure the ‘right scope’ has been delivered at the ‘correct quality’. Too low and there are cost consequences in rectification, too high and you may have spent money unnecessarily.
These three elements exist in a risk frame. Whilst risk management will not ‘control’ the future, it will allow opportunities to be identified and grasped and threats mitigated and avoided by changing the way the work is undertaken and as a consequence optimise cost outcomes.
The two key facets that permeate all of the above are stakeholder management and time management.
- Stakeholder management both within the team and externally, (including effective communication) is central to achieving a successful outcome at the best price. Stakeholders are in the supply chain, include the project team and contractors and can have a major impact on the risk profile of the work. For more posts on stakeholder management see: http://www.stakeholder-management.com/blog/?cat=5
- Time management focuses on ensuring the right people are in the right place at the right time, with the right resources and equipment to do the work in the optimum sequence. For more posts on time management see: https://mosaicprojects.wordpress.com/category/project-controls/scheduling-project-controls/
Both of the above need regular reviews and adjustment within the overall frame of the emerging risk profile.
Where ‘cost engineering’ adds value is via techniques such as Earned Value (EV). Applying EV effectively allows the symptoms of a deviation from the expected performance to be highlighted through Cost Variances and other reports.
As with medicine and diseases, it is capability to recognise and correctly interpret symptoms that allows diagnosis that leads to the effective treatment of the under-laying problem. In project and business management space, this should translate to the requirement for managers not only to report a cost variance, but also to identify the cause of the variance and to recommend and/or implement corrective actions.
Whilst it is impossible to directly manage or control costs; timely and accurate information on cost performance can be a valuable diagnostic tool to remedy the real issues. What’s needed is for senor managers to stop focusing on ‘cost’ and start asking deeper questions about performance and risk. I know many readers of this blog will say this already happens in their organisations, but I also know that far too many other managers focus on the symptom of cost performance rather than the under-laying problem to the detriment of their businesses.
Posted in Scheduling, Stakeholder Management
Tagged Communication, Cost Control, Cost Engineering, Cost Management, Earned Value, EV, EVM, Project, Project Governance, Project Management, Project success, Risk, Risk Management, Scheduling, Stakeholder Analysis, Stakeholder Management, Stakeholders